WASHINGTON -- The Concord Coalition released a report today that
reviews the major issues raised by the Social Security reform proposals of Vice President
Al Gore and Texas Governor George W. Bush. Now available on-line,
the report examines the fiscal and demographic challenges facing Social Security, offers a
framework for evaluating reform proposals, and provides an initial assessment of the two
proposals. The report's purpose is to
provide the public and the media with a source of unbiased analysis of the difficult,
often confusing, issues involved in Social Security reform.
The executive summary follows:

The Gore Proposal

The Bush Proposal

Best
point: Places
strong emphasis on debt reduction.

Best
point: Places strong emphasis
on prefunding future benefits.

Weaknesses:

Weaknesses:

Fails
to propose any benefit reductions or revenue increases to address Social Security's
long-term cash deficits, which are projected to begin in 2015 and continue forever.

Fails
to propose any benefit reductions or revenue increases to address Social Security's
long-term cash deficits, which are projected to begin in 2015 and continue forever.

Aims
at the fiscally and economically irrelevant goal of trust fund solvency.

Adds
a new entitlement (“Retirement Savings Plus” accounts) without reducing the
unfunded obligations of the current system.

Does
not confront the transition cost that arises from funding personally owned accounts with a
portion of the current payroll tax.

Like most Americans, The Concord Coalition is delighted with the
federal government's improving fiscal condition. However, today's prosperity has
not turned back the coming age wave. The number of retired Social Security beneficiaries
is still due to grow five times faster than the number of tax paying workers over the next
half century. Nor has prosperity erased the projected growth in benefit costs. In fact
over the past four years, the officially projected cost of Social Security as a share of
payroll beyond the year 2040 has actually increased. And in November 1999, the Technical
Panel of the Social Security Advisory Board warned that the official projections might
greatly underestimate future longevity and hence future costs.

It is thus a welcome development that Social Security has moved to
the top of the campaign 2000 agenda. But while it is certain that Social Security will be
a major campaign issue, it remains uncertain whether the candidates will face up to the
hard choices and trade-offs that must be made to put the program on a fiscally sustainable
and generationally equitable path. The early signs are not encouraging.

Vice President Al Gore has offered a proposal that would credit
trillions of dollars of additional IOUs to the Social Security trust funds, thus extending
the program's technical solvency but doing nothing to lower its long-term cost
burden. In fact, his proposal would increase the cost of the current system by expanding
benefits without offering any corresponding reductions. Moreover, it would do nothing to
alter the declining rate of return on workers' payroll contributions.

Texas Governor George W. Bush has proposed that workers be allowed
to devote an unspecified portion of their payroll taxes to personally owned retirement
accounts, which presumably would earn higher returns than taxes paid into the current
system. But personally owned accounts come with a transition cost because the same tax
dollars cannot be used to fund both new accounts and benefits promised under current law.
So far, Governor Bush has not recommended any method of paying this transition cost, and
thus has not explained how his proposal would be fiscally sustainable.

There are, of course, positive elements in each candidate's
approach. Vice President Gore's emphasis on balanced budgets and debt reduction is
fiscally responsible. Using the Social Security surplus to reduce the publicly held debt,
as the Vice President proposes, would not directly reduce the future cost burden of Social
Security, but it may make that burden easier to bear by increasing the size of the economy
and creating resources to cover at least a portion of the projected cash deficits which
begin in 2015.

Governor Bush's emphasis on allowing workers to begin
prefunding a portion of their own retirement through personally owned accounts could, if
properly designed and implemented, provide a way to maintain adequate benefits, improve
the return on workers' contributions, and lower the cost of the system for future
taxpayers.

But neither debt reduction nor personally owned accounts alone is a
credible solution to Social Security's long-term challenges. In truth, there are only
two roads to genuine reform, and a workable plan must pursue both. First, and
indispensably, reform must reduce Social Security's long-term burden by reducing its
long-term cost. At the same time, it should try to make the remaining burden more bearable
by increasing national savings, and hence the size of tomorrow's economic pie.

At this point, the Gore and Bush plans fall short on both counts.
Neither plan even attempts to rein in the long–term cost of the program. Moreover, it
is questionable whether either would result in any net new savings since neither provides
new funding by raising new revenues or reducing promised benefits.

What we are left with is a choice between two free lunch proposals.
That kind of political debate, which rules out changes in current benefit promises or tax
rates, is perhaps worse than no debate at all because it locks the new President into an
indefensible position. If the end result of the Social Security debate in campaign 2000 is
a national embrace of this free lunch temptation, it will be a great disservice to
tomorrow's workers and beneficiaries, many of who are already paying into the system.

Free lunch proposals and over-heated rhetoric during the campaign
will make it difficult to engage in substantive bipartisan reform after the election. It
is crucial that the hard choices be acknowledged and addressed in the 2000 campaign.
Consider that if the winner of this year's election serves two terms, the first of
the Baby Boomers will qualify for Social Security benefits before he leaves office. The
window of opportunity for phased-in modest changes is beginning to slide shut.

The Concord Coalition is a nonpartisan, grass roots organization
dedicated to balanced federal budgets and generationally responsible fiscal policy. Former U.S. Senators Warren Rudman (R-N.H.) and
Sam Nunn (D-Ga.) serve as Concord's co-chairs and former Secretary of Commerce Peter
Peterson serves as president. The organization does not endorse, support or oppose
candidates for public office or political parties.